You are going to hold a stock for an infinite amount of time. The current dividend is $1 per share and is expected to grow at 9% a year. Your long run required return is 13%. Using the infinite period dividend discount model calculate the value of the stock.
Click on the arrows to vote for the correct answer
A. B. C. D.A
First determine D1, which is the next period dividend. In this case it should be $1.09. Next use the formula V = D1/(k - g) or V = $1.09/(0.13 - 0.09) = $27.25.
To calculate the value of the stock using the infinite period dividend discount model, we need to use the formula:
Value of stock = Dividend / (Required return - Dividend growth rate)
Given information: Current dividend = $1 per share Dividend growth rate = 9% Required return = 13%
Let's plug in the values into the formula:
Value of stock = $1 / (0.13 - 0.09)
Simplifying the expression:
Value of stock = $1 / 0.04
Value of stock = $25
However, none of the answer choices provided match this calculated value. It seems there might be a discrepancy between the provided options and the correct answer based on the calculation. Please double-check the answer choices or the provided information to ensure accuracy.